Brace for a Rs 2/litre hike in diesel price

The government is looking to limit the increase in diesel price to a maximum of Rs 2 per litre, against the Rs 4 per litre proposed by the petroleum ministry, while simultaneously reducing the central excise duty on diesel by Rs 1 to Rs 1.50 per litre. Anupama Airy reports. Biting the bullet

The government appears to be in no hurry to pass on the diesel subsidy burden entirely to the consumer. The government is looking to limit the increase in diesel price to a maximum of Rs 2 per litre, against the Rs 4 per litre proposed by the petroleum ministry, while simultaneously reducing the central excise duty on diesel by Rs 1 to Rs 1.50 per litre.

The Empowered Group of Ministers (EGoM) on fuel pricing under finance minister Pranab Mukherjee is likely to meet in the next few days to consider the proposal, a senior government official close to the development said.

The government earns Rs 30,000 a year from the central excise duty of Rs 4.80 a litre.

Though international oil prices have fallen by over 10% in the past two weeks, state-owned oil companies are losing close to Rs 12.50 per litre of diesel sold in the domestic market.

Sources said the price of cooking gas (LPG) is also set to go up, with the petroleum ministry having proposed a Rs 25 per cylinder hike. As a diesel price hike has a cascading effect on the cost of food and essential commodities, thereby increasing inflation, the government is cagey over raising its price steeply.

Even after duty adjustments, the losses on diesel will continue to be high, and the government may resort to “small hikes over a period of time,” the official said.

The price of petrol was recently increased by Rs 5 a litre, and another immediate hike is unlikely. But the revision in the dealers’ commission may result in a small (upto r0.40) escalation, the official said.

“Petrol prices have already been freed so it is for the oil companies to decide on the dealers commission on petrol,” he said. “It is expected that a decision to increase the dealers commission will be taken after the EGoM’s meeting.”